Review: Daron Acemoglu and James Robinson’s “Why Nations Fail”

by Miles Raymer

Why Nations Failhas been weighing down my bookshelf for a few years now, but the recent election of Donald Trump sent me scurrying to dust it off. First published in 2012 by Daron Acemoglu and James Robinson, this treatise on the differences between successful and unsuccessful nations feels newly relevant and frighteningly intimate. Looking abroad is a fine way to uncover examples of sclerotic and corrupt government institutions, but increasingly the same scrutiny must be applied here at home.

The main argument of Why Nations Fail puts the structure of political institutions front and center:

This book will show that while economic institutions are critical for determining whether a country is poor or prosperous, it is politics and political institutions that determine what economic institutions a country has…Our theory for world inequality shows how political and economic institutions interact in causing poverty or prosperity, and how different parts of the world ended up with such different sets of institutions. (43-4)

This approach reminded me of Robert Reich’s Saving Capitalism, which I recommend to anyone looking for a more concise but less eclectic version of this institutional theory. Like Reich, Acemoglu and Robinson see politics as the determinant of economics, and not the other way around. Political institutions decide what can be bought, sold, and taxed, and also create innumerable other rules that define lawful economic behavior. This interpretation runs contrary to prevailing neoliberal theories, in which the invisible hand of market forces is considered the ultimate determinant of economic fluctuations and boundaries.

Acemoglu and Robinson compare their theory of political institutions to three other hypotheses that might explain why nations fail: the ignorance hypothesis (failing countries just don’t know how to make themselves successful), the culture hypothesis (certain cultures are more inclined to failure than others), and the geography hypothesis (nations fail because of geographical hindrances). They dispatch the first two theories with little trouble, but are less successful with the geography hypothesis. In a world where geopolitical problems have expanded and persisted despite globalization and technological advances, Acemoglu and Robinson don’t give geopolitics a fair hearing. I recommend Tim Marshall’s Prisoners of Geographyfor that side of our global story.

After establishing the primacy of their institutional theory, Acemoglu and Robinson fill it out by defining the difference beween inclusive political institutions and extractive ones:

We will refer to political institutions that are sufficiently centralized and pluralistic as inclusive political institutions. When either of these conditions fails, we will refer to the institutions as extractive political institutions.

There is a strong synergy between economic and political institutions. Extractive political institutions concentrate power in the hands of a narrow elite and place few constraints on the exercise of this power. Economic institutions are then often structured by this elite to extract resources from the rest of the society. Extractive economic institutions thus naturally accompany extractive political institutions. In fact, they must inherently depend on extractive political institutions for their survival. Inclusive political institutions, vesting power broadly, would tend to uproot economic institutions that expropriate the resources of the many, erect entry barriers, and suppress the functioning of markets so that only a few benefit. (81)

The authors go on to argue that healthy, inclusive political institutions are the surest road to inclusive economic institutions, which are the bedrock of sustained prosperity in the modern world. The character of a country’s political institutions, therefore, is the critical factor that determines whether it will succeed or fail.

Acemoglu and Robinson support their claims with numerous, wide-ranging examples from all over the world and across the centuries. They give special attention to the emergence of inclusive political institutions in Britain and the United States, and foil those examples by describing the origins of extractive political institutions in Africa and Latin America. Despite how that might look at first glance, this is not a theory that sings the praises of western pluralist societies while deriding nonwestern cultures for not being more like us. Neither is it a diatribe that seeks to blame all the world’s problems on western colonialism. Each nation has its own detailed story that results in either inclusive or extractive politics, and the consequences that follow always echo other cases but never duplicate them entirely. Acemoglu and Robinson prove adept at teasing out the nuances in each national tale and contextualizing the results using their institutional theory.

For those Americans anxiously watching the opening weeks of the Trump Administration, Acemoglu and Robinson’s examination of extractive political institutions will be chillingly enlightening. They point out that while inclusive political institutions are resilient, they are also not always robust enough to resist turning into extractive institutions if the wrong kind of leadership and/or set of historical circumstances comes along. Progress is neither guaranteed nor permanent.

The extractive dynamics that keep many failing nations down are the same ones that can bring an already-inclusive society to its knees. Most failing nations are ruled by a firebrand leader and an oligopoly of rich cronies that dominate industry and trade while quashing the emergence of healthy, competitive markets. Acemoglu and Robinson urge us to be especially skeptical of “extractive growth,” wherein an extractive political regime manages to grow the economy in a significant but ultimately unsustainable fashion:

The growth generated by extractive institutions is very different in nature from the growth created under inclusive institutions…Most important, it is not sustainable. By their very nature, extractive institutions do not foster creative destruction and generate at best only a limited amount of technological progress. The growth they engender thus last for only so long. (150)

People anywhere must be critical of leaders who claim to produce growth for the betterment of society when such growth is actually an indicator that wealth is being siphoned upward into the hands of elites. In America, this process was already well under way before Trump took office, and there is little reason to assume it will abate during his presidency if those opposed to extractive growth do not take swift and decisive action.

Putting aside the political moment, Acemoglu and Robinson offer a host of useful ideas with which we can analyze any society, modern or otherwise:

Over time, all societies undergo “institutional drift,” which explains how different nations can arise under similar political circumstances but end up in very different places. This concept is based on “genetic drift” from the field of biology (108).

Centralization of power is always a double-edged sword. A state is that not centralized enough will be unable to produce inclusive political institutions, but a state that is too centralized becomes vulnerable to takeover by absolutists/dictators (186, 216-7).

Transforming an extractive political institution into an inclusive one is possible, but very difficult and historically rare. Such a change almost always requires a broad coalition of interests, with at least a fraction of the empowered class siding with disenfranchised groups (427).

Participation in global economic growth and free trade doesn’t necessarily cause nations to become more inclusive, democratic, or pluralistic, as many assumed in the latter decades of the 20th century (443).

In many ways, Why Nations Fail has everything I look for in a great piece of nonfiction. However, this book does have two interrelated weaknesses that make it a bit difficult to endorse. The text is painfully repetitive, coming back to the same points over and over again (much like some parts of this review!). This nearly 500-page book could have been much shorter, even without excising any of the historical examples. Additionally, Acemoglu and Robinson’s institutional theory, while legitimate, also feels too reductive. Making my way through the latter chapters, I became increasingly incredulous that such a broad range of historical events should be understood primarily in terms of inclusive and extractive institutions. Fortunately, the authors are observant enough to acknowledge the limitations of their approach:

Any complex social phenomenon, such as the origins of the different economic and political trajectories of hundreds of polities around the world, likely has a multitude of causes, making most social scientists shun monocausal, simple, and broadly applicable theories and instead seek different explanations for seemingly similar outcomes emerging in different times and areas. Instead we’ve offered a simple theory and used it to explain the main contours of economic and political development around the world since the Neolithic Revolution. Our choice was motivated not by a naïve belief that such a theory could explain everything, but by the belief that a theory should enable us to focus on the parallels, sometimes at the expense of abstracting from many interesting details. A successful theory, then, does not faithfully reproduce details, but provides a useful and empirically well-grounded explanation for a range of processes while also clarifying the main forces at work. (429)

It’s hard to argue with that reasoning, but it’s also impossible to ignore the reality that a lot is left out when we focus so narrowly on history––a field that always outstrips our best attempts at comprehensive analysis. Even so, Acemoglu and Robinson have done right by their chosen project, and provided the world with a valuable frame with which to understand past and present events.

[...] Countries differ in their economic successes because of their different institutions, the rules influencing how the economy works and the incentives that motivate people. Political and economic institutions can either encourage economic growth or become obstacles to it as political institutions determine economic development. [...]